RBI to buy Government bonds to ease inflation

A18 November 2011: The apex bank of the country, Reserve Bank of India (RBI) is planning to buy government bonds worth Rs 10,000 crore from investors for the first time this fiscal, aiming to ease pressure on interest rates after three of the four bond sales this quarter did not have enough takers at the specified price. The move to ease the pressure of excess demand for funds than what is available, may be militating against the central bank's anti-inflationary stance as more funds in the market add to demand, fuelling price rise.

This may not be the first such injection of funds into the system by RBI to temper the government's borrowing costs as the treasury may raise the borrowing target again as revenue growth falters. The government raised borrowing target in the second half to 2.2 lakh crore from 1.67 lakh crore forecast in February. This need not necessarily be an indicator of RBI's view on government bond yields, but only to avoid abnormal demand for funds.

Source: Economic Times